Consultant Wants CUs To Use The 'F' Word: Fees

Fees.

It's really not such a bad word, after all, even if it does start with an "f" and has four letters. And for years credit unions have been successful not using it. But no more, according to Timothy Harrington, CPA of T.E.A.M. Resources in Tucson, Ariz, who believes it's about time credit unions do.

"The day of the luxury of having to not charge fees is gone," he told a packed room of about 150 people during the Illinois league annual conference. "If we don't charge fees, we are not going to make a profit to keep up with asset growth."

The session, entitled, "You Can't Cut Your Way to Profitability Anymore," attacked some fundamentals in the traditional credit union business model.

"Credit unions have always seen themselves as being different from banks because we don't charge fees," he said. "But that was because we didn't have to. We had no credit cards, no ATMs, no Internet banking, no bill paying online. We didn't offer all those things that cost us money."

The reality is that without fees, credit unions will not thrive.

"Don't take that not-for profit thing too seriously," he said, adding that that doesn't mean credit unions have to start acting like banks. "The banks are profit oriented to make money for their shareholders," he said. "Their focus is profit. Our focus is service."

Of course, there are other options that include cutting costs, but Harrington argued cost cutting has its limits.

"We have gone through a period of belt tightening," he said. "And we have done a good job. If you wanted to cut more costs, where would you cut them from? Compensation? Not without cutting people. Office operations? After you cut so far, it hurts member service. Training and education? At the risk of causing long-term damage."

Maybe board salaries, he joked adding, "Ha! Make them pay you to volunteer."

Harrington said there are some efficiencies every credit union should pursue, including automation of finance and accounting process, reviewing workflows and removing steps that don't add value, offering incentives such as air miles and special relationship pricing to the more profitable members, and improving collections by considering incentive pay for collectors.

The final piece, he said, is boosting revenue.

"Revenue enhancement will not come from loan interest income or investment interest income," he said. "It will more likely come from non-interest income such as fee income and non-traditional sources of revenue."

That doesn't mean you have to go fee crazy. Harrington suggested CUs avoid fees that are an obstacle to desired member behavior. Examples are penalty fees for deposits and service and usage fees that discourage the use of automated delivery systems.

Some non-traditional sources of revenue might include credit life and disability insurance, CUSOs, website construction and maintenance, loan participation, commercial loans, commercial checking and savings accounts, tax preparation, leasing and shared branching.

Harrington said it even would be beneficial for more credit unions to start investigating the possibilities of offering check-cashing services.

"It's a $1.5-billion profit industry that we should look at," he said. "While profitability is not our primary concern, it's a strong secondary concern," Harrington said. "We have to make a profit every month, every quarter, every year. Ideally, we could make a profit on every transaction."

Why? It allows credit unions to provide better service to members in the way of lower loan rates, higher deposit rates, additional convenience and additional products and services.